Saturday, February 14, 2009

Signs of the time; it's time to learn economics!


John Mauldin in The Market Oracle "Back to the 1998 Crisis, Subprime's to Impact for a Longtime"


Even though all the pro-Obama voters (and non-voters the world over) have experienced an anti-climax "bleh" after the whole election kerfafle was done, I do know, we are far from being out of the woods. There are forces at work to the conspiracy theorists, who are determined to undermine and undo the American dollar. Globally, financially, we are connected to whatever, whomever, where ever, a stock market or industry would collapse.

Most recently, US Treasury Geithner accused China of manipulating their currency. However, what has been common practice in most American administrations, republican or democrat is having a discussion be two way. 'Cause apparently, the Obama administration hasn't been listening.

Simon Smelt, New Zealand economist



Here is Simon Smelt, writing for "Seeking Alpha";

"China’s leadership likes to communicate by brief but loaded signals, both to its own population and beyond. They are less inclined – have less need - to posture than politicians in the West. That is, they mean what they signal.

Whilst China is reliant on the U.S. as its biggest market and for the investments it has made there, the U.S. is reliant on China for ongoing cheap credit and goods. Given this inter-dependency, what is China signalling about its intent amidst current market turmoil?

The signals are clear but don’t seem to have been well picked up by the media. I suggest that there are three loud “No”s to be found in what China has been saying on the international stage, as well as some quieter “Yes”s."

Here are Simon's three 'NO's':

1 - "...In 2005 a bilateral Strategic Economic Dialogue (SED) between China and the U.S. was set up. Reportedly, Beijing has put a lot of effort into this and sees the SED as the primary channel for dealing with pressing economic issues. It is the mechanism for dialogue between the G2 on strategic issues, including those of worldwide importance.

What all this boils down to is that China expects to be involved in the big decisions. The message is:

No more U.S. hegemony in the financial world

Lacking a suitable multi-national mechanism (memo from China: “don’t blame us – we’ve been calling for one”), the G2 will do fine instead."

2 - "...The U.S. has long run a trade deficit with China. The U.S. fiscal deficit by the government is more recent. It stems from the Bush years and is about to get much worse due to the various bail-out and stimulus packages. The Chinese can scarcely object to the trade deficit – they have funded it for years. So, the message is: don’t rely on us to buy your extra bond issues caused by your economic mismanagement.




So, the second Chinese “No”:

No extra U.S. bond purchases by China above the normal level"

3 - "...China will voice its concerns over U.S. government finances and the potential for a weaker dollar when Secretary of State Hillary Clinton visits China on Feb. 20. The idea has been floated that a guarantee might be “one of the prerequisites for more (bond) purchases”.

What’s going on here? The Chinese know full well that “guarantees” in the normal sense of the word can’t be given. What they are communicating is more than a bit of anxiety. It is the third “No”:

No policies that could lead to sharp depreciation of the U.S. $"

Read the whole, very well explained financial relationship and US/Chinese exchange on the current financial situation at Seeking Alpha's "China's Three No's to the U.S.: Is Washington Listening?"

Well people, time to stop being an unconscious consumer and use the time to learn some economics instead!

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4 Comments:

Blogger an average patriot said...

We never were in the past but today we are all tied with global and a global economy. China is not alone but they have been very concerned with our printing and devaluing the dollar because it affects everyone.

I remember about 6 months ago the concern with China manipulating their currency! Last week I wrote about the concern of the push to buy Americans and warnings against us becoming isolationist.

This morning I saw stories and more warnings and (I wish I saved it) a push by the senate to buy American? I did hear that a while back because of the stimulus and the desire to have it spent here not abroad.

I do not give a damn what anyone says, Bush set this crisis up or should I say Greenspan did it for him. The timing is no coincidence and this is just beginning. It will dwarf the great depression in every respect!

4:32 PM  
Blogger R.J. said...

Bush and Greenspan already screwed us a long time ago. It's too late for us consumers to do anything about it.

7:51 PM  
Blogger lindsaylobe said...

China needs the US as much as the US needs China. The first priority for Obama I think is to visit China and in my opinion it would have been far preferable if he had done that in conjunction with the stimulus package. Still, its very early days and hopefully Hillary can make progress.

I think China will continue to buy US Treasurers in the short term but the US needs to engage China as a partner rather than as the enemy. Joint Ventures can be forged rather than the outsourcing nightmare of old which decimated some home industries and led to the false claim about higher rates of productivity pertaining to the US economy -a view particularly championed by Greenspan; which was essentially a myth.
What the Chinese are concerned about (quite rightly) is any significant depreciation of the US dollar since it involves potentially huge losses for them on their exporting industries which will be uncompetitive.

But the USA also needs to increase its exports and reduce imports in order to achieve an improved trade Balance so as to expand the potential size of GDP to avoid a later drag on aggregate demand leading to inflation and to underwrite a strong dollar.

Hence exports and productivity will need to increase in my opinion for the US to emerge from the current downturn and once again become a vibrant economy; to maintain long term claim for the USA dollar to be the world’s reserve currency. It is hardly surprising to me also that China wishes to be engaged in friendly discussion.

No in China speak does not always mean no just as yes does not always mean yes. They both mean come and talk to me.
Best wishes

2:32 AM  
Anonymous Stock Investment advice said...

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8:59 PM  

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